‘Flat is the new normal’ for ad spend

Media executives fear there may not be any breakthroughs on the horizon for the sector until a federal election late next year, after the annual meeting season painted a grim outlook for Australian companies.

Media industry insiders warned that the combination of a minority federal government, weak consumer confidence, declining business sentiment and a reduction in marketing budgets by multinational corporate advertisers had conspired to suppress the advertising market.

“I’m starting to think that flat is the new normal," said the chief executive of media agency Starcom MediaVest,
John Sintras
.

The advertising market continued to be short (in terms of forward ad bookings), he said, and advertisers remained cautious about committing.

“Consumer sentiment is still wobbly and uncertain," he said. “A government that no one has confidence in hasn’t helped, either."

Starcom is still holding to its prediction of 1.3 per cent growth year-on-year for the total ad market in the December half.

But many others in the industry are uncertain.

“It is impossible to make projections from here," said Fairfax Media chief executive Greg Hywood during the newspaper, radio and digital group’s annual meeting in October.

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Fairfax, which publishes The Australian Financial Review, said its revenue was down 7.5 per cent year-on-year in September and the first few weeks of October, compared with previous guidance of a 10 per cent fall given in August.

Southern Cross Media, which operates regional TV and radio, and metropolitan radio, said its revenue was down 10 per cent in the September quarter.

“There is nothing to change the dynamics, there’s no catalyst," said media analyst and Fusion Strategy managing director Steve Allen.

Like several others contacted by the Financial Review, he said he did not think the ad market would improve until the federal government held an election, which is due by late next year. That was assuming it resulted in a majority government and a more certain policy environment.

Mr Allen said global advertisers accounted for more than half of the ad dollars spent in Australia and the historically high Australian dollar had forced them to spend less domestically.

In the six months to June, three of the biggest multinational advertisers operating locally slashed their marketing budgets by double digit percentages, according to Nielsen.

The Unilever Group, whose brands include Omo, Streets and Dove, cut its ad spend by 23 per cent year-on-year, while Nestle’s and Volkswagen’s fell by 17 per cent.

Mr Allen believes the historically strong correlation in Australia between GDP growth and advertising expenditure no longer applies. “For decades we used to be able to say GDP plus 1 or 2 per cent, but no more and never will be again," he said.

Nine Entertainment Co group sales and marketing director
Peter Wiltshire
said part of the reason for this break in correlation was the two-speed economy.

“Resources aren’t advertisers," he said, estimating the resource sector only generated about $20 million a year in advertising. Although the Perth ad market was outperforming, “the rest of the country is not getting that rub-off".

“It doesn’t feel great at the moment," Mr Wiltshire said. “From here until Christmas I don’t think there’s much oxygen in it." He said the overall ad market might grow by the low single digits next year.

Seven West Media chief sales and digital officer
Kurt Burnette
said the ad spend associated with a federal election in 2013 would provide a boost. But this was likely to be offset by a suspension of other marketing expenditure during the campaign.

Former prime minister
John Howard
is estimated to have spent about $200 million in taxpayers’ money in the lead-up to the 2007 election while Prime Minister
Julia Gillard
outlaid about $120 million to win the 2010 poll, which resulted in a minority government.

Another factor breaking down the traditional correlation between economic and advertising growth is online retailing, Mr Burnette said. “The reality is people are shopping more overseas online and that’s affecting advertising," he said.

But even the online advertising industry expects growth to taper off in the digital space, taking the heat out of the ad market’s strongest performer.

The chief executive of the local arm of the Interactive Advertising Bureau, Paul Fisher, expects total online advertising growth to be 15 to 20 per cent in the 2012 calendar year, with a softening in the online display and classified sectors.

This is significantly below online advertising’s 23 per cent growth in the June half. But Mr Fisher said there were signs bricks-and-mortar retailers would increase their online ad spend in the December quarter. “We still feel optimistic about Christmas," he said.

The head of investment market research for fund manager Perpetual, Matt Sherwood, said the economy was unlikely to improve, with under-employment being about 6.5 per cent, a predicted end to the commodities boom early next year and weakening consumer confidence.

“I think the Reserve Bank and the government are complacent about how strong mining is going to be," Mr Sherwood said. The Reserve should be more aggressive in its interest rate cuts in order to stimulate consumer demand, he added.